Restricting exports will destory markets, not tame inflation

New Delhi, May 18 (UNI) FICCI today was critical of the government's decision to impose a hefty export duty and hiking the Miinimum Export Price (MEP) on basmati rice, saying that it will not have the desired effect of bringing down inflation but would lead to loss of markets.

To tame spiralling prices, the government recently had imposed an export duty of 200 dollars per tonne on basmati rice and hiked Minimum Export Price (MEP). FICII was of the view that this will not have any impact on inflation, but would lead to loss of credibility in global markets of India being a reliable exporter.

The Chamber argued that basmati rice being consumed by the rich will not deter them from lowering their consumption.

In a letter to Prime Minister Manmohan Singh and Finance Minister P Chidambaram, the industry body argued that the twin measures hold out the ominous possibility of loss of export markets in many thrust countries and partly undo the Union Government's major contribution in propelling exports.

A Chamber research report said the total consumption of rice in the country is close to 89.9 million tonnes, of which the consumption of basmati is meagre 0.2 per cent.

This proportion is consumed by the group having high disposable incomes. Therefore, imposing an export tax may not lead to any major shift in the rise of consumption pattern in the domestic market.

Further, the production of basmati rice is negligible--1.9 per cent-- compared to the total rice production of the country. Of the total rice production of 95.8 Million Tonnes (MT), basmati rice production accounts for only 2.32 MT.

FICCI said although the production of basmati paddy has increased by 95 per cent between 1998 and 2006, this increase in production was largely due to crossbred basmati paddy varieties, with the increased basmati production displacing only two per cent of the common or non-basmati rice.

The higher level of MEP, which is below the ex-factory price, runs the risk of becoming the reference or benchmark price in the export price. A number of importers may demand reduction in the price of export of basmati rice.

The introduction of more complication in the buyer-seller relations will destory India's export markets. .

In the fiscal 2006-07, 1.06 million tonnes of basmati rice worth Rs 3,064 crore was exported and farmers of basmati paddy realised Rs 2,298 crore.

The average year on year growth of basmati exports is 12 per cent between 1991-92 and 2006-07 and India garnered 53 per cent of share in the global markets.

Basmati farmers have seen their farm income double in two years as basmati prices rose to new levels due to rising demand in the major importing countries. In this backdrop, the government's decision to impose an export tax on basmati exports and hike MEP has raised concerns among the farming community, it said.

Unlike other items, export duty on basmati will have direct implications on farm income. Besides, it will rattle the confidence of importers in Indian export policy and may therefore, lead to and become another case of decline in global market share as has happened in the case of Darjeeling tea.

UNI SG PDT RAI1250